MATLEY EXPANSION

 Matley Financial Services has now opened a serviced office in Glenlyon Avenue, Greerton, Tauranga.  This is to service the increasing number of clients which we have there.  Commencing Tuesday 20^th January 2008 and every Tuesday after that, David will be in Tauranga all day available to meet with clients and potential clients.  If you would like to book a time to meet with David in his office in Tauranga, please call 0800 MATLEY (628 539) to set up a time.  If you would like for David to meet you at your home or business in Tauranga, this can also be arranged.

 We are also in the process of designing an office space at our home office in Vaile Road, Hamilton.  We have well and truly outgrown the office space that we built when we first built our house in 2006 and we hope to get David out of the portacabin that he is currently in and into his new spacious office sometime in 2009.  Maggie is getting sick of his complaints!!

INTEREST RATES DROP

 Last Thursday saw an unprecedented drop of the official cash rate to 5%.  With one of the most dramatic decreases in the OCR for a long period of time, this was a signal by the Governor of the Reserve Bank that the economy needs a dramatic kick start to keep it going.  Although Bollard did mention that technically the recession is over, what this is referring to is a recession in economic terms is defined as two periods of consecutive declining growth.  As the quarter ended June and September declined and the economic figures have indicated that it is now stabilized, that is where Bollard is referring to a technical end to the recession.  However, most people will be feeling the hurt in their back pocket and will be wondering where the Governor gets such a statement from.

Of course with the lowing OCR many banks have moved quite quickly to slash their short term interest rates and the floating rate for mortgages.  It has led many people to give consideration to early repayments of their mortgages, capitalizing any break fees and then re-fixing at the lower rate.

However, there are a few barbs that are attached to this type of procedure and the analysis should always be completed before consideration is given to doing a break fee.

To give an example we had a client who recently approached us to do the analysis on a potential break fee for one of their mortgages.

The detail of the mortgage was $229,000 fixed at 9.09% and had 9 months to run.  Their bank had calculated an early repayment adjustment of $2,905.66.

The bank had calculated the interest savings over 6 months at the new fixed rate of 7.35% as interest savings of $2,988.45 over a 9 month period which they believed gave a saving with the early repayment adjustment.

Furthermore the fortnightly payment went from $798.43 down to $645.60.

One of the important considerations that need to be taken into account is the time value of money.  In the instance quoted above, the bank had calculated that the early break fee was $2,905, but the savings over the 9 months at the lower rate was $2,988.45 giving a net saving of $82.79.  However there is the time cost of the value of money and at current inflation of 2% which is what is expected over the next 12 months, the savings are whittled down to $24 in current value.

Similarly when calculating the fortnightly payments, which is based on the capitalization of the break fee to the loan, $798.43 per fortnightly over 9 months calculates total payments of $14,371;  Payments of $645.60 equates to $11,620 and then you add on the break fee of $2,905 giving total payments of $14,526.46.  So therefore in the long run, you actually pay more.

While the above example is determined on a loan that only had 9 months to run, each break of the loan should be calculated on its own merits.  Furthermore to put money where our mouth is, we did the calculations for our own loans and have determined that on a 2 year fixed loan which we took in April of this year, we would not be making any savings after paying the early repayment fee until January 2010 and the rate expires in April 2010.  Therefore we have determined that with the 3 month savings, it's not worth giving up the break fee now in cash and if we were to capitalized it on top of the loan; we have eroded any equity we have gained by the repayments of the mortgage over the last 9 months.

  CHRISTMAS AND NEW YEAR

 This year Matley Financial Services is closing its doors for the Christmas and New Year's period on the 22^nd December 2008.  We will be reopening to client appointments and phone calls on 19^th January 2009.  David and Maggie will be away from the 3^rd January 2009 to 12^th January 2009 and will not be available by mobile.  If anything urgent crops up during our closed hours, please leave a message on David's mobile and he will return your call when able - 029 452 1985.

Please - stay safe over the holiday period, and we look forward to seeing you next year.

David Riding a Camel in Perth